Once again, Apple CEO Tim Cook told investors the secret of iPhone’s sales success was “Android switchers.”
But stats from Apple’s earnings call, and data from independent market researchers, shows another story: One of the reasons iPhone is running out of steam — Cook said sales would decline next quarter — is because Alphabet’s Android phone system has been surprisingly resilient as iPhone’s franchise has weakened.
Apple’s iOS lost market share in every single major market except China last quarter, according to Kantar Worldwide. That trend was also shown in some research by investment analysts at Raymond James.
First, let’s look at what Cook says.
Over the last six quarters, Cook has repeatedly said that whatever quarter Apple just filed set a new “record” for customers who switch from an Android phone to Apple.
Apple’s fiscal Q1 2016 call last night, was no different, Cook said:
We were blown away by the level of Android switchers that we had last quarter. It was the highest ever by far. And so we see that as a huge opportunity.
After the launch of iPhone 6 in 2014, that was certainly true. The new format large-screen phones blew Android — and particularly Samsung — out of the water. A lot of people switched. But since then, Apple has not managed to persuade a majority of iPhone users with older phones to upgrade into the iPhone 6 or iPhone 6s lines. Cook said last night (emphasis ours):
The number of people who had an iPhone prior to the iPhone 6 and 6 Plus announcements — and so this was in September of 2014 that have not yet upgraded to a 6, 6 Plus or 6s or 6s Plus is now 60%. So, another way to think about that is 40% have, 60% have not.
Kantar published some new data on iOS vs Android today. Android switchers may actually be in decline, according to Carolina Milanesi, chief of research at Kantar Worldpanel ComTech:
Apple loyalty in the U.S. is at its highest since 2012, reinforcing the fact that customer retention is not an issue. However, customer acquisition from Android has gone from 13% in 4Q14 to 11% in 4Q15, and the contribution that first-time smartphone buyers make to Apple overall sales numbers went from 20% to 11% over that same period.
Here are Kantar’s stats for Apple’s major markets. It lost share everywhere except China:
On January 19, Raymond James published this chart from its own survey, showing that while the late 2014 iPhone 6 launch did hurt Android, Android has since clawed its way back:
This chart shows that Android customers might turn out to be surprisingly loyal in terms of the next phone they want to buy, especially as Samsung’s new Galaxy S6 line turned out to be of far higher quality than most reviewers were expecting (Business Insider’s Steve Kovach says Samsung has “leapfrogged” Apple in terms of hardware design):
Lastly, one of the most surprising things Cook said last night was about prices.
Cook was talking about Apple’s currency problem, which is that devalued international currencies hurt Apple products that are made in, and sold against, a stronger US dollar. Apple CFO Luca Maestri had said earlier on the call that higher prices may have dampened demand for Apple products: “Inevitably over time, higher prices affect demand and so we’re capturing that in our guidance. So, I would say these are the major reasons and the drivers for the guidance on revenue,” Maestri said. The guidance he was referring to was Apple’s expected 11% decline in revenues for next quarter.
However, I think you can tell from the numbers that Luca is talking about just on the currency side and that’s before thinking through the effect that price increases can sometimes have on the business over a period of time, it’s clear that the economic piece is large.
In some ways, this is the most extraordinary issue to come out of last night’s call: Apple’s two most important executives admitting that Apple products are vulnerable to price competition. For the longest time, the mantra around Apple was that Apple did not compete on price, because its products were superior, its iOS platform was “special” to Apple, and because Android products — which are cheaper — are not equivalent to an iPhone.
And yet when the currency headwinds blow against Apple, here we have the CEO talking about prices.
This sets up Apple for one of its most interesting years ever. iPhone is already in decline this quarter, just as Samsung may have gotten its act back together after a two-year period in which Apple dominated.
It’s going to make the autumn launch of iPhone 7 one of the most economically significant events in Apple’s history.
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